In establishing a combined health reimbursement arrangement (HRA) and a dual-purpose profit sharing plan that fully utilizes the tax benefits available under the U.S. tax laws, two key requirements needed to establish such a plan are that monies dedicated to a medical sub-account must be both:                a) fully non-forfeitable to the plan participant, and        b) exclusively used for reimbursing medical expenses (as defined under Section 213 of the U.S. Tax Code) of the plan participant, their spouse, and their dependents (Section 152 of the U.S. Tax Code).To date there have been numerous IRS Revenue Rulings that reiterate these two requirements:Non-Forfeitability—Revenue Ruling 2005-55 found that a profit sharing plan that provides medical reimbursement expenses to each participant does not meet the provisions of Section 411 of the U.S. Tax Code on non-forfeitability and meeting one of the minimum vesting schedules.Exclusive Use—Revenue Ruling 2005-24 found that an HRA that provides for payment of unused reimbursement amounts to plan participants in either cash or other non-medical benefits causes all payments made from the arrangements during the year to any person, including amounts paid to reimburse medical expenses, includable in gross income.Exclusive Use—Revenue Ruling 2006-36 held that amounts paid as medical benefits to designated beneficiaries (other than the employee's spouse or dependents) are not excludable from employee's gross income. Any amounts so paid to a designated beneficiary causes all payments made from the HRA during the year to any person, including amounts paid to reimburse medical expenses, to be includable in gross income.        
As a result of these two rulings it is important that a plan sponsor that is providing medical reimbursements to a plan participant through a dual-purpose plan to vest the employee in the plan contributions as required under Section 411 and to retain the certainty that any funds set aside will be used exclusively for Section 213 medical purposes.
There are no individual or group insurance products in the market today that a plan sponsor can purchase that guarantees them that both of these provisions (non-forfeitable and exclusive use) are met. Products in the market today do not offer either:                1) an annuity that makes payments exclusively for the payment of medical reimbursements, expenses, or premiums, or        2) a medical policy that extends for the life of the covered individual(s) and does not have future premiums that are subject to adjustment in the future—most policies today are guaranteed renewable and have monthly or annual premiums that are subject to change based upon the insurance pool's performanceAdditionally, existing insurance regulations and valuation standards do not contemplate such a product as health insurance regulations presume that offered policies will be limited to no more than a one year term and annuity standards assume payments are made for cash without limitation for demonstrated need.        